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Stock Market Outlook for April 18, 2016

**NEW** As part of the ongoing process to offer new and up-to-date information regarding seasonal and technical investing, we are adding a section to the daily reports that details the stocks that are entering their period of seasonal strength, based on average historical start dates. Stocks highlighted are for information purposes only and should not be considered as advice to purchase or to sell mentioned securities. As always, the use of technical and fundamental analysis is encouraged in order to fine tune entry and exit points to average seasonal trends.

The Markets

Stocks ended lower on Friday, led by the energy sector, as investors cast a vote of no confidence ahead of the meeting of oil exporters on Sunday. The price of oil dipped by just over 2%, trading back to its 200-day moving average ahead of the market-moving event. At the time of writing, the latest update from the meeting of OPEC and non-OPEC producers is that there is no deal to freeze output levels, an outcome that is likely to send shockwaves through the commodity market into Monday’s session. First level of support to watch for the energy commodity is $39.66, representing the lower limit of the gap opened at the start of last week in the run-up to the Doha meeting. The 50-day moving average, presently hovering around $36, presents the line in the sand to the positive intermediate-term trend. Seasonally, crude oil prices, along with the energy sector, remain positive into early May, but the catalyst of a non-agreement amongst producers to take action to support prices could bring an early end to this seasonal trade.

The impact of this last minute pessimism in the energy market saw the S&P 500 Index pull back slightly from resistance between 2080 and 2100; the market continues to search for a catalyst to push the benchmark through resistance or below support, which can be found between 2020 and 2040. Momentum indicators continue to rollover as buying pressures fade. With the flow of earnings continuing to act as a potential catalyst, either to the upside or downside, as well as a number of economic events, such as the FOMC meeting next week, waiting for the break, one way or the other, may be prudent. The period of seasonal strength for the S&P 500 Index concludes at the beginning of May.

The last half of April and into May is typically a transition time for equity and commodity markets as seasonal trends begin to conclude, but one trade is about to begin. The price of sugar tends to gain between the start of May and the end of July, trading higher into the peak planting time in central-south Brazil. Between May 4th and July 31st, the price of sugar has gained in 72% of the periods over the past 25 years, averaging a return of 10.08%. The price of sugar showed significant strength on Friday, bouncing over 6% as investors became concerned, once again, of a deficit in world production. Price continues to hold above its 200-day moving average, which is now pointing higher after four and a half years of declines. A trend of higher-highs and higher-lows may be emerging. With the positive seasonal backdrop, the technical framework is conducive to further gains ahead.

On the economic front, a report on industrial production presented concern pertaining to the ongoing strain in this segment of the economy The headline print indicated that industrial production declined by 0.6% in March, missing estimates calling for a decline of 0.1%. The manufacturing component was also lower, down by 0.3% versus expectations of a gain of 0.1%. The results weren’t much better after stripping out seasonal adjustments. Industrial production actually declined by 0.1%, which is much lower than the 0.7% average gain for the month of March. Typically, February and March are strong months for this economic report, showing gains 86% of the time for each month over the past 50 years. The fact that we’ve now seen two back-to-back declines during this strong period should raise concerns. Industrial production is now flat on the year, a divergence from the average 2.3% gain through the first quarter. Manufacturing, on the other hand, was higher by 1.0%, also light compared to the 1.5% average gain for the third month of the year. This component is running around half of the average pace, gaining just 1.7% in the first quarter versus an average increase of 3.3%. Consumer goods seem a notable strain on the overall report, trending lower following a strong start to the year. Industrial production of consumer goods has reverted to back to a below average trend, likely the result of bloated business inventory levels, primarily amongst commodity producers, that are limiting the desire to produce new product. Production of durable consumer goods was relatively flat in March, while non-durable consumer goods, which is influenced by the production of commodities, continued to trend lower, below the average trend. Overall, there are enough areas of concern in the report to reignite the debate pertaining to the strength of the economy following a string of better than expected reports released in the first quarter. Industrial production is typically sluggish in the month of April, so don’t be surprised to see a negative year-to-date print as the annual pace converges with the below average pace set last year.

Not all of the manufacturing data released on Friday was lacklustre. The New York Fed weighed in on its manufacturing conditions for April, the headline print of which saw continued improvement to 9.56 from 0.62 previous. Analysts had expected a print of 3.00. Stripping out seasonal adjustments, the actual read was 17.92, which is inline with the average for the month of April. After more than a year of below average activity, manufacturing activity, at least in the New York region, is converging once again with normal levels, in part reflecting the rebound in commodity prices through the past couple of months.

Sentiment on Friday, as gauged by the put-call ratio, ended bullish at 0.80.